Manufacturing Seems Back in Recession
Friday, November 16, 2012
|Alan Tonelson is a Research Fellow at the U.S. Business & Industry Educational Foundation and the author of The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade are Sinking American Living Standards (Westview Press).|
Today’s manufacturing data show a 0.76 percent month-month real output drop in October on top of a downwardly revised 0.09 percent gain in September.
At least as important, the figures, released by the Federal Reserve shortly before the fiscal cliff meeting between President Obama and Congressional leaders, provide the first evidence that U.S. manufacturing sector is now in recession. As a result, the overall economy has been deprived of a major growth engine.
The data, presented on a seasonally adjusted NAICS basis (North American Industry Classification System), show that manufacturing output is now down on net over the last six months – by 1.49 percent. The Fed figures make clear that manufacturing output would have experienced a six-month decline even had Superstorm Sandy not depressed production in much of the East and especially the Northeast.
For all of calendar 2012, manufacturing output has now fallen 0.54 percent. In calendar 2010 and 2011, production increased by 6.40 percent and 4.29 percent, respectively.
The same pattern can be seen on an October to October basis, where real output rose by 7.29 percent from 2009-2010, 4.53 percent from 2010-2011, and 2.01 percent from 2011-2012.
Manufacturing output is now 6.55 percent below its all-time high, achieved nearly five years ago on the recession’s eve in December, 2007.
As a result, America is moving farther from President Obama’s stated goals of ditching a national business model overly dependent on reckless spending and borrowing, and creating "an economy built to last." In fact, before this latest downturn, manufacturing’s share of GDP had only recovered to bubble era levels – now widely recognized as far too low to support healthy economic growth.
The industrial production report’s internals were just as bad as the overall figure. Inflation-adjusted output fell from September to October in such capital- and technology-intensive sectors as motor vehicles and parts (which had been leading the manufacturing rebound), aerospace and miscellaneous transportation equipment, computer and electronics products, machinery, primary metals, fabricated metal products, and chemicals. Plastics and rubber products were among the few sectors that saw real monthly production increases.
An especially poor performance was turned in by manufacturing capacity utilization. The September figure of 76.80 percent was revised down to 76.70 percent, and the reading plummeted to 75.90 percent in October. This figure is well below both the long-run (1972-2011) manufacturing capacity utilization average of 77.80 percent and the 2012 peak of 78.02 percent, reached in February.
These trends are strongly signaling that the reindustrialization needed to fuel a stronger and more sustainable economic recovery – and ultimately repair America’s broken national finances – will require much greater policy changes than so far proposed by either major party. Reversing the vigorous rebound in the manufacturing-dominated U.S. trade deficit since the recovery began – is the place to start.
Alan Tonelson is a Research Fellow at the U.S. Business & Industry Educational Foundation and the author of The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade are Sinking American Living Standards (Westview Press).